OECD report says Greeks pay too much on social security contributions, but little on salary tax

By Prokopis Hatzinikolaou and Leonidas Stergiou

Real incomes in Greece dropped by a massive 25.3 percent in 2011 from the year before, according to an annual report by the Organization for Economic Cooperation and Development (OECD) which uses data forwarded by the Greek Finance Ministry. It adds that Greek salary workers pay relatively low taxes but high social security contributions.

Maurice Nettley, senior tax policy economist at the OECD, told Kathimerini on Wednesday that the average gross salary in 2011 dropped from 20,457 euros to 15,729 euros. The reduction amounts to 23.1 percent, but actually grows to 25.3 percent when taking inflation into account. After-tax incomes (for unmarried workers) went down by 25.5 percent to 16,180 euros.

The OECD report further notes that Greeks pay particularly high social security contributions, but the tax they pay is among the lowest in the member states of the Organization. In fact, social security contributions are deemed disproportionately high with regard to the service offered by the pension funds.

In total, the share of tax and social security contributions (by employers and employees) amounts to 38 percent of total salary costs. This breaks down to 3 percent for taxes, 12.8 percent for salary workers’ social security contributions and 22.2 percent for the employers’ contributions to the funds.

The OECD report argues that taxes in employment are harmful to growth. It adds that governments that need to collect more revenues should focus on reducing tax exemptions on matters such as pension contributions and mortgage loan interest, as well as exemptions from tax on sales that are less harmful.

Meanwhile Finance Minister Filippos Sachinidis stated on Wednesday that, “obviously, had the fiscal adjustment process been less abrupt, the impact on growth would have been smaller, and a slightly longer period of fiscal streamlining would also have had a smaller effect on growth.” However he added that such an option would require more funding than that which is currently available for Greece.